VTB Capital Plc v Nutritek International Corp & Ors

Piercing a company’s corporate veil does not make its controller a party to the company’s contracts. Contractual liability ordinarily depends on an objectively established consensual arrangement between those intending to contract.

Permission to serve a tort claim outside the jurisdiction requires a serious issue to be tried, a good arguable case within a jurisdictional gateway, and proof that England is clearly or distinctly the appropriate forum. Damage sustained in England may be weighty, but creates no determinative presumption where other elements and the dispute’s centre of gravity lie abroad.

Funds received under a separate participation agreement do not eliminate a lender’s loss when the lender parts with its own property in reliance on a fraud.

VTB, an English bank, alleged that it had been fraudulently induced to lend approximately US$225 million to a Russian borrower for the acquisition of Russian dairy companies. It alleged that the seller and borrower were secretly under common control and that the acquired assets had been substantially overvalued.

Arnold J, in [2011] EWHC 3107 (Ch), refused permission to amend the claim so as to treat the borrower’s alleged controllers as parties to the lending contracts. He also set aside permission to serve the tort claims outside the jurisdiction. The consequent worldwide freezing order could not continue.

The consolidated appeals concerned whether piercing the corporate veil could impose contractual liability on the controllers, whether the tort claims satisfied the requirements for service outside the jurisdiction, and whether a worldwide freezing order should continue.

1. The appeals were dismissed. Piercing a corporate veil is a limited and pragmatic doctrine. It may permit an appropriate discretionary remedy where a company has been misused as a device or façade to conceal wrongdoing. It does not make a controller an original or additional party to a contract which neither the controller nor the acknowledged contracting parties intended the controller to join. Such liability would contradict the consensual foundation of contract and the company’s separate legal personality.

   Antonio Gramsci Shipping Corporation v Stepanovs [2011] EWHC 333 (Comm) and Alliance Bank JSC v Aquanta Corporation [2011] EWHC 3281 (Comm) were overruled so far as they supported such a contractual cause of action. The proposed amendments were therefore unsustainable.

2. For permission to serve a foreign defendant outside the jurisdiction, the claimant must establish a serious issue to be tried, a good arguable case within a gateway, and that England is clearly or distinctly the appropriate forum. The forum inquiry is one overall assessment of where the case can suitably be tried in the interests of all parties and the ends of justice.

3. VTB had a triable case that it suffered loss in England. Under the Participation Agreement, the money supplied by VTB Moscow became VTB’s property. VTB suffered loss when it paid that money to the borrower. The participation funding was the source of the loan, rather than a benefit consequent upon the fraud which reduced VTB’s loss. There was also a sufficiently arguable case that Marcap BVI participated through Mr Malofeev.

4. Those conclusions did not establish jurisdiction. Damage in England did not create a controlling presumption that England was the appropriate forum. Applying sections 11 and 12 of the Private International Law (Miscellaneous Provisions) Act 1995, the elements of deceit pointed tentatively towards English law under the general rule, but the broader connections made Russian law substantially more appropriate. The dispute’s centre of gravity was Russia, and VTB had not shown that England was clearly or distinctly the appropriate forum.

5. The freezing-order issue was consequently moot. The court nevertheless observed that a good arguable case of major fraud, involving sophisticated international structures capable of obstructing enforcement, may strongly support an inference of a real risk of dissipation. The court must scrutinise the nature of the alleged dishonesty rather than treat any allegation of dishonesty as sufficient.

1. Court of Appeal (Civil Division): The consolidated appeals were dismissed. The refusal of the contractual amendments and the setting aside of permission for service outside the jurisdiction were upheld. The worldwide freezing order consequently ceased to have a basis: [2012] EWCA Civ 808.
2. High Court, Chancery Division: Arnold J refused permission to add contractual claims, upheld the defendants’ jurisdictional challenges, and held that the worldwide freezing order should not continue: [2011] EWHC 3107 (Ch).